The World of Takaful Current Achievements Future

The World of Takaful Current Achievements & Future Outlook By Dr. S. J. Malaikah Chairman – BEST Re Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 1

Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 2

Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 3

Introduction “Takaful” is the brand name for the Islamic alternative to conventional insurance. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 4

Basic Principles u Very similar in nature to co-operative and mutual insurance, – it endorses their basic principles of solidarity and profit-sharing – whilst retaining a capitalistic base (shareholders) and above all – Ensuring compliance with the Islamic Shariah rules and principles Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 5

Shariah Compliance u Shariah compliance is an essential element in Takaful insurance. u It is ensured through a Shariah Supervisory/ Advisory Board at the level of each Takaful company. u The role of the Shariah Board is vital in meeting the specific demand of a public who would not insure otherwise. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 6

Takaful Pioneers u Takaful started some 27 years ago in the Middle East with the launching of two companies: – The Islamic Arab Insurance Co. (IAIC) in the UAE and – The Islamic Insurance Co. of Sudan u But it took some time for the movement to take shape. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 7

Takaful Pioneers u Later in 1984, Malaysia played a pioneering role in setting the first Legal framework specific to Takaful (Takaful Act). u This was instrumental in the successful launching of the Takaful movement in Malaysia and in other countries of South East Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 8

Other Islamic/ Takaful Legislations u Other markets such as the Sudan and Iran have Islamic regulatory environments and became naturally Takaful markets. u In the Gulf countries specific Takaful legislations are coming through in Bahrain and in Saudi Arabia Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 9

Takaful Today u From a handful of operators two decades ago the Takaful movement has blossomed into a fast growing phenomenon in many Muslim countries with very promising prospects in other countries with a large Muslim community. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 10

Takaful drivers u This movement is driven by – a strong demand from a public who would not insure otherwise (because of religious beliefs); and – The successful development of Islamic banking institutions providing capital and Islamic financial instruments for asset management and investment. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 11

Takaful Drivers u Islamic banks and financial institutions play a strategic and important role in the distribution of Takaful products (especially Life Takaful Products). u Just as Bancassurance played an important role in the distribution of personal lines insurance products Bancatakaful is an important driver for Takaful. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 12

Takaful Operators u The number of Takaful operators worldwide is now estimated at: u 60 Takaful companies u 3 Retakaful companies u This number may reach 90 + if socalled Takaful windows are to be included. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 13

Takaful Premium u Takaful is one of the fastest growing segments in insurance (at around 20% pa. on average) u World Takaful contributions are conservatively estimated at around US$ 3 billions, of which: – 60% General Takaful – 40% Family Takaful Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 14

Takaful Geographical Spread u South& East Asia : u Middle East : u Africa: u Europe, USA & Others: Asian Conference on Takaful (Insurance) 56% 36% 7% 1% Inter. Continenta. I Singapore, 29 -30 March, 2006 15

Main Markets u Malaysia u Indonesia u Iran u GCC countries u Other Arab countries u Other Asia Pacific Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 16

General Vs Family Takaful u In the Far east region Family Takaful was and still is the driver of the segment in terms of contributions and growth; u Whereas General Takaful leads the way in the Middle east markets. u This trend is slowly changing with the advent of new highly capitalised Takaful players in the GCC determined to develop Family Takaful products. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 17

Personal Lines Vs. Corporate Accounts u Current Takaful portfolios are in most cases geared towards personal lines with the largest percentage derived from Motor business. u Diversification towards Corporate accounts is a big challenge ahead Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 18

The Challenges ahead u Despite a remarkable breakthrough and a dynamic and sustained growth, there are challenges facing the Takaful industry. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 19

The business model dilemma u The existence of two business models: F F Mudharabah (Profit & Loss sharing) Wakala (agency contract with a performance fee element to replace surplus sharing) u And the introduction more recently of the Waqf model u Could create an uneven / unfair business environment to operate Need to reach a consensus internationally on a common and standard Takaful business model u Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 20

Takaful Best Practices u Regional Takaful institutions and organisations need to come together internationally in order to promote and standardise best practices within the industry: – – Islamic Financial Services Board (IFSB) ASEAN Takaful Group (ATG) International Takaful Association (ITA) Accounting and Auditing Organization of Islamic Financial institutions (AAOIFI) Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 21

Retakaful Solutions u Takaful operators are heavily reliant on reinsurance. u There is a high need for Re. Takaful solutions Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 22

Retakaful Solutions u There are currently 3 Retakaful operators in the market providing services to primary Takafuls: – Asean Retakaful International (L) Ltd. (Malaysia) – BEST Re (Tunisia) – Takaful Re (U. A. E. ) Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 23

Retakaful Solutions u Need to create a mechanism for an active role of Retakaful in the Islamic financial system; u Need to promote a strong Retakaful operator capable of playing a leading role in providing first class security, capacity and value-added services. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 24

Retakaful Solutions u The idea of an International Retakaful Syndicate/ Consortium was launched recently in Langkawi (Malaysia) at the 2 nd International Symposium on Takaful. u Need to promote a Retakaful hub capable of hosting the maximum number of Retakaful offers. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 25

Future Outlook u Despite the remarkable growth rate recorded by the Takaful industry, penetration is still far below the enormous market potential offered by the Muslim community worldwide (23% of the total world population). Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 26

Growth Outlook u World Muslim population is estimated at 1. 5 billions, of which around 97% are based in Asia and Africa. u A two-digit growth in the range of 15% to 20% can be reasonably sustained for at least the next 10 years in the existing markets (Far and Middle East). Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 27

New Takaful Frontiers u Markets like Europe, North and Latin America, Central Asia, Australia where large Muslim communities live are huge untapped reservoirs; u The recent opening towards “Islamic windows” in the banking sector in Europe is likely to be followed by “Takaful windows” initiatives. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 28

Takaful at Lloyd’s u The recent opening at Lloyd’s of a Takaful dedicated syndicate (Creechurch) is a clear indication that the segment is promising. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 29

Takaful, Cooperatives & Mutuals u International institutions such as the UKbased International Co-operative and Mutual Insurance Federation (ICMIF) recognised the Takaful movement as part of the global cooperative & mutualistic paradigm. u ICMIF is firmly committed to supporting the development of Takaful schemes in Muslim and Non-Muslim countries. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 30

Takaful, Cooperatives & Mutuals u “Folksam”, an ICMIF member, is actively building affinity with the Muslim community in Sweden by offering Takaful schemes and products. u In France, Some mutuals are showing interest in Takaful products. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 31

Takaful Products to Non-Muslims u Takaful Products are not exclusive to Muslims. u Competitively priced and sold through the right channel it could attract any consumer irrespective of their origin or faith. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 32

Conclusions u Despite the challenges facing this “new” industry, exciting times are ahead once the latent potential is unleashed. u The success of Takaful largely depends on that of Islamic Financial institutions on a global basis. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 33

Conclusions u There is a need for – More strategic alliances and synergy between Islamic Financial institutions; – More cooperation between Islamic operators at an international level – A better legal and regulatory environment – Better competencies in Islamic Finance. Asian Conference on Takaful (Insurance) Inter. Continenta. I Singapore, 29 -30 March, 2006 34